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China’s fintech stocks are starting to soar ahead of the expected launch if its CBDC. This is driven by the possibility that the digital currency will provide a need for security and payment services.
While Facebook is trying to do everything it possibly can to ensure proper regulatory approval before the Libra is launched next year, China’s own digital currency is much closer to its launch. The anticipation for the Chinese digital currency has now had some measurable effect on fintech companies in the country as their stocks seem to be swelling impressively.
According to a Reuters report, the China Securities Index Co. (CSI) fintech theme index – an index that follows the major financial technology (fintech) firms – has recorded more than 50% in gains, ensuring a much better growth than the broader market.
The Beijing Certificate Authority is one of the best performers so far. The company, which renders services that pertain to electronic authentication, has surged by almost 200% in 2019 alone and recently hit a new record this September. Another surge has been recorded by the country’s largest network security firm, 360 Security Technology Inc. The firm has also increased higher than 50%.
Back in August, the deputy director of the People’s Bank of China (PBoC) Payment and Settlement Division, Mu Changchun revealed that the Central Bank Digital Currency (CBDC) is now ready to be launched, after a long period of development which spanned about five years.
Changchun also gave further details about the currency saying that it will not adopt blockchain technology. According to him, the PBoC Digital Money Research Group initially created a working prototype for the currency which would use normal blockchain technology.
However, the team eventually found out that using blockchain would affect the currency’s efficiency as well as its concurrency because of the sheer size and population of the country. Changchun then explained that blockchain had to be abandoned.
Furthermore, the CBDC will operate on a two-tier system. The currency will have commercial banks in the first tier and the rest of the population including businesses, will be under the second tier. Issuance, distribution as well as redemption, will be done via the PBoC through the commercial banks in the country. All of the participants under tier 2 will then be able to access the CBDC from the commercial banks. The currency will also be a stablecoin, backed 1:1 to China’s Renminbi.
The PBoC is also very concerned with financial inclusion. This is why the CBDC will be easily accessible by residents, even if they have no traditional bank accounts. The system will also be able to handle as many as 300,000 transactions per second, a level of scalability presently impossible through blockchain technology.
Even though the country is not entirely supportive of the cryptocurrency sector, China still has considerable influence in the industry because of the volume of trades and high mining concentration in the country. Regardless, the Chinese government is quite biting on mining and even ICOs are not permissible.